1. Field of the Invention
The present invention is directed to a system and method of insurance underwriting and rating vehicles. In particular, the present invention is directed to such system and method in which insurance underwriting and rating are provided based on vehicle history attributes.
2. Description of Related Art
The vehicle industry is perhaps one of the largest industries in many industrialized regions of the world. As a result, the market for used vehicles, and especially automobiles, has evolved into a substantial market, especially in North America, and in particular, the United States and Canada.
Those parties involved in insuring used vehicles recognize the value of information relating to a few specific facts related to a vehicle in making a decision to write a new policy and determining the price of that policy. Consequently, services have been created that function primarily to provide certain limited vehicle history information to various parties in the used vehicle market, including, for example, insurance providers.
When an insurance company is writing a new policy, they first “underwrite” that policy to determine whether the risk is one they are willing to accept or not, and if so, to which class of policies it belongs. Many insurers have both “standard” and “nonstandard” policy classes with the less risky policies going into the standard class and the riskier policies (e.g., teenage drivers) going into the nonstandard class. That being said, some insurers have only one policy class and some have multiple policy classes depending on how they have elected to structure their underwriting criteria.
Once the insured is assigned to a class through underwriting, the insurance company then “rate” that policy based upon a set of criteria to determine a specific premium to be charged. Traditionally, this criteria has revolved around the class of vehicle (e.g., sports car vs. family sedan; 8 cylinder vs. 4 cylinder), driver behavior (e.g., number of speeding tickets, the expected annual miles to be driven), and driver characteristics (e.g., age, gender).
Most insurers will not underwrite a vehicle that has previously received certain title brands due to concerns about its structural integrity. For example, if the vehicle has been in a flood, then its wiring may be more likely to malfunction potentially leading to an accident. Likewise, if the vehicle has previously sustained major damage and is in a subsequent accident, insurers may believe that the new damage is likely to be amplified due to a weakened structure or the previous use of aftermarket parts.
Therefore, many insurers may require the insured to inform them if the title of the vehicle has been branded. If an insured fails to make this disclosure and the insurance company discovers this failure during the evaluation of a claim, the insurance company may elect to modify its claim payments or deny the claim in its entirety. Thus, the issue of branded title vehicles has historically been handled on the back end of the insurance process.
Some insurers have experienced enough of a problem with unwittingly insuring branded title vehicles that they have instituted a process for checking the vehicle's title prior to issuing a policy. For example, an insurance provider may run a CARFAX Vehicle History Report on every vehicle as a part of their underwriting process. If the vehicle is determined to have a particular title brand, the insurance provider may decline to insure the vehicle.
Many insurance providers utilize the title brand data for underwriting only. This data is generally accessed through association with the particular Vehicle Identification Number (VIN). For example, an insurance company may decide not to insure a vehicle having a salvage or flood title brand. Also, some insurers use the expected annual miles to be driven in the future as one of the criteria for determining a premium for an insurance policy. In fact, California law now requires insurance companies operating in California to use the aforementioned annual mileage as one of the rating factors used to determine policy premiums.
However, relying solely on prospective annual mileage information may not be desirable, because historically, there has been no reliable source for providing this data. Many insurers using this data rely on the insured to self report their expected annual miles to be driven or rely on a crude statistical estimation model based upon the distance driven between home and work. There are also other statistical models employed, such as random sampling and “area rating”, where it is assumed that everyone in the same geographic area drives the same amount yearly unless otherwise noted.
Therefore, there exists an unfulfilled need for a system and method for underwriting insurance policies and providing a system and method for rating underwritten insurance policies. In addition, there also exists an unfulfilled need for such a system and method in which underwriting is provided based on vehicle history events related to a specific vehicle. Furthermore, there also exists an unfulfilled need for a system and method for underwriting insurance policies and providing a system and method for rating underwritten insurance policies from information related specifically to a particular vehicle based on of that specific vehicle's history.